Entrepreneurs outsorucing

Outsourcing Tips: Fixed Rate vs. Hourly vs. Salary Contracts

fixed rate hourly salary outsource contract

In previous posts I’ve outlined some tips on the best counties to outsource work. Today I want to cover the best ways to pay for that work and how to choose the right outsourced contracts.

For years now, I have easily drop six figures annually on payroll because 95% of my staff are employed overseas.  Through a lot of trial and error, I have used my experiences to learn how to make this into an art form.  From fixed rate to hourly to salary, based on your project I have outlined the criteria for the best choice when hiring. So without further adieu, let’s get into it!

Fixed Rate

Fix rate jobs are great for short term work. By short term I mean a few days to a few weeks worth of work.  These are especially great for programing jobs.

A really awesome feature for a fixed contract are bugs or revisions.  You typically do not need to pay for them.  Another really great attribute is the negotiation of payment.  Typically you can layout the terms of the contract before starting so you can plan and budget ahead for payroll disbursements.

Before starting a contract with a contractor I highly recommend that you have all of the details for the project in place.  You also need to be as specific and as granular as possible.  I can’t tell you how many times I gotten into it with a contractor because I was not clear with the scope of work.  The only real draw back happens when a SOW is not specific.  If you need to go back and forth with a contractor and the project ends up extending itself for weeks;  90% of the time that contractor will “go missing”.  Chances are, the work done is outside of the original SOW negotiated and they will likely get pissed. Then they will take on other work to keep their cash flow rolling in.  That means putting your contract on the back burner.  Learn from my lesson and be as specific in the beginning as possible.


In my opinion, hourly rates are grate for maintenance contracts or simple day-to-day tasks. If you think you’re going to encounter a series of tasks and don’t have the time or energy to negotiate each task, then this also the right option for you.

That contractor knows that in order to get paid, they need to be working so they will be available to grind out the work you provide them quickly.  Typically these types of contracts have the person working on their hours (not yours) unless that is negotiated in the beginning.

Here’s a quick tip.  Set a cap on those hours weekly.  If a contractor works under the cap, then it’s good for you because you’re under budget for that week.  If they go over the cap, then you do not necessarily need to pay for it.

There are really two main drawbacks of hourly contracts that you should be aware of.  First being bugs and revisions.  Unless otherwise stated prior to starting a contract, then these types of issues will likely be billed hourly.  If their quality of work sucks, then expect a ton of revisions.  A ton of revisions equate to an increase in billable hours.  The second drawback is time card fraud. You really need to be monitoring the logged hours closely.  7/10 times the contractor is logging hours incorrectly or is clocking in and leaving their computer running to rack up their hourly.  It has happened to me a bunch of times. You really need to pay attention to this. If it happens, then fire that contractor immediately.


Salary contracts are great if you know you’ll need someone on staff full time.  These contractors are typically online when you need them to be.  You set an 8 hour schedule and you can expect them to be there for it.  Another great feature of  salary contract comes with large projects and due dates. If a huge project due date is looming around the corner, you can expect your staff to work unpaid OT to get the job done.

Here are the drawbacks.  Prior to even considering a salary contractor make sure you have your company handbook and guidelines in place.  The contractor will expect to have PTO, holidays and benefits.  You need to outline all of these terms clearly prior to even starting a contract.  Logistically, it will be a headache to set up, but if shit hit’s the fan, you can fall back on this handbook.  The second draw back is urgency. Without a deadline, most contractors will lollygag and take their time to complete projects.  To mitigate that, you really need to set the habit of making deadlines for each task.

Wrap up

I hope this helps shed light on the best ways to hire overseas contractors. If there is something I didn’t consider, then let me know in the comments.  Let’s discuss!  Otherwise, drop a message below and let me know what you think.